The House of Lords overturned proposals to place everyone who applies for a new passport or driving licence on the database that will underpin the controversial scheme.

In a second reverse for ministers, they demanded a complete set of fresh legislation before ID cards could become compulsory at any future date.

Following three defeats for the Government last week, the Home Office faces taking on the Lords over five crucial elements of the ID Cards Bill. Labour's majority on the Bill shrunk to 25 in October and, with backbenchers in an increasingly fractious mood, Government whips could face an uphill struggle to win a new Commons majority for Tony Blair's flagship bill.

Baroness Scotland of Asthal, the Home Office minister, had to listen to a succession of peers denounce plans to include all holders of biometric passports on the planned ID cards register. Not one peer spoke in favour of the plans. Ministers have always insisted the scheme was voluntary, but critics say it amounts to "compulsion by the back door".

Viscount Bledisloe, a crossbencher, said: "One would be debarred from the freedom to travel around the world unless one 'chose' to go on some other government register."

Lord Stoddart of Swindon, a crossbencher, claimed ID cards were among several Government policies that were undermining freedoms built up over many centuries.

He said: "Some of these measures have the elements of a fascist state - and this country is preaching to many countries about democracy."

Lord Selsdon, a Tory peer, protested that the proposed scheme had echoes of totalitarian regimes. He said: "It's strange we should be swinging so far backwards... Most of the new members of the European Union are longing for the days when they don't have to carry their papers day and night."

Lady Scotland said the claim that the Government was contemplating a fascist state was contradicted by the vigorous debate taking place on the policy. She argued Labour had made clear its intention to move towards a compulsory scheme in last year's election-winning manifesto.

She said: "We have always been clear that the identity cards scheme is being designed and is intended eventually to become a compulsory scheme for all UK residents and in this second phase of the scheme it will be a requirement to register with a civil penalty regime for failure to do so."

However, peers voted by 186 to 142 - a majority of 44 - during the Bill's report stage to enable people to get biometric passports without going on the database.

An hour later, the Government was defeated again when an amendment requiring a separate Act of Parliament before ID cards could become compulsory was passed by 198 to 140.

Last week, peers voted to require ministers to set out detailed costs of ID cards.

This meant the measure would not come into effect until the Home Secretary, Charles Clarke, has laid a report for approval by MPs, with a detailed account of the costs, and a statement of expected benefits.

This was followed later by two further defeats when peers voted to demand a secure and reliable method of recording and storing citizens' personal data, and curb use of the register for provision of public services.